2.-.£)ÖÖ Devoted to Yörük* Ali * My father is called Yörük Ali in Alanya.Yörük means nomad. Before he was married to my mother, he used to be a nomad in the Taurus mountains. Thanks to my dear father for his endless devotion to my education. BILKENT UNIVERSITY INSTITUTE OF ECONOMIC AND SOCIAL SCIENCES THE RUSSIAN ECONOMIC TRANSFORMATION IN THE EARLY 1990s AND SOME ASSESSMENTS IN THE WEST BY ÖMER KOCAMAN A THESIS SUBMITTED TO THE DEPARTMENT OF INTERNATIONAL RELATIONS IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF INTERNATIONAL RELATIONS SEPTEMBER 2000 ANKARA '¿Г), и. ■ KCl ІО о о βί'·532ί>7 Approved by the Institute of Economic and Sociai Sciences I certify that I have read this thesis and have found that it is fully adequate, in scope and quality, as a thesis for the degree of Master of International Relations. (Thesis Supervisor) Prof. Norman Stone I certify that I have read this thesis and have found that it is fully adequate, in scope and quality, as a thesis for the degree of Master ol International Relations. Prof. Duygu Sezer ■.-/.'i. y · / I certify that I have read this thesis and have found that it is fully adequate, in scope and quality, as a thesis for the degree of Master of International Relations. Prof, ilber Ortaylı ABSTRACT The Russian economic transformation is a fascinating story on many grounds. When the Soviet Union disintegrated at the end 1991, the new question pervaded the West was how to integrate the post-communist Russia into the international community, politically and economically. As to the economic transformation and integration, the economists and other intellectuals produced an enormous literature on how to convert centrally planned socialist economies into capitalist market economies. Many Russian and foreigners, who have dedicated large energies to the economic transformation of Russia in its first years, argued that Russia would end up in economic growth if it followed the proposed reform packages. Although Russia realized many proposed reform packages, it ended up in economic failure. This master thesis strives to explain the Russian economic transformation between 1992-1995 and its assessment or perception in the West. ÖZET Rusya’nın ekonomik gelişiminin birçok açıdan büyüleyici bir öyküsü vardır. 1991 yılı sonlarında Sovyetler Birliği dağıldığı zamanlarda, Batı dünyasında yeni bir soru sorulmaya başlandı, bu soru kominizm sonrası Rusya’nın politik ve ekonomik açılardan nasıl uluslararası bir devlet haline getirileceğiydi. Ekonomi değişimi ve ekonominin yenilenmesi açılarından bakıldığında, birçok ekonomist ve entellektüel’in merkez dayanaklı sosyalist ekonomilerin ne şekilde kapitalist pazar ekonomilerine dönüştürleceği konusunda tezler ürettikleri görülür. Rusya’nın ekonomik değişiminin ilk yıllarında özverili çalışmalarıyla gündemde olan birçok Rus ve yabancı ekonomist, Rusya’nın önerilen reform paketlerini kabul etmesi halinde ekonomik büyümenin gerçekleşeceği konusunda uzlaşmışlardı. Rusya önerilen ekonomik paketleri kabul ettiği halde ekonomik gelişme başarısızlıkla sonuçlanmıştır. Bu master tezi, 1992- 1995 yılları arasında Rusyadaki ekonomik gelişmeleri anlatmak ve Batı ülkeleri tarafından nasıl değerlendiridiğini veya algılandığını açıklamak üzere hazırlanmıştır. ACKNOWLEDGEMENTS I am deeply grateful to my supervisor, Prof. Norman Stone, whose knowledge and efforts have been the major support in the completion of this dissertation. Without his guidance and academic vision on the topic this dissertation could never have been realised. His way of supervision and his illuminating knowledge encouraged me to finish this study. I would like to thank Prof. Hakan Kırımlı for all the insights and encouragement he gave me in the completion of this dissertation. I am grateful to my dear friends, especially Ms. Nazlı Güven, extended their help during my study. Lastly, I would like to thank to my dear father, mother and sisters for their endless support during my studies. TABLE OF CONTENTS Abstract...........................................................................................................................................i Özet.................................................................................................................................................ii Acknowledgements.......................................................................................................................iii Table of Contents..........................................................................................................................iv INTRODUCTION........................................................................................................................ 1 CHAPTER I: THE SOVIET ECONOMIC SYSTEM AND ITS DISTORTIONS IN THE ECONOMIC LIFE 1.1. The Soviet Nomenklatura..................................................................................................9 1.2. The Shadow Economy......................................................................................................10 1.3. Mafia ................................................................................................................................. 11 1.4. The Origins of Gorbachev Perestroika............................................ 14 1.4.1. Stagnation...........................................................................................................................16 1.4.2. Reasons of Stagnation....................................................................................................... 16 1.5. Gorbachev Era....................................................................................................................17 1.5.1. Crisis in Consumer Markets .......................................................................................... 23 1.6. Radicalization of the Debate on the Economic R eform ............................................24 1.6.1. The Abalkin Plan of November 1989 .............................................................................25 1.6.2. The Shatalin Plan............................................................................................................. 27 1.7. An Evaluation of Gorbachev E ra .................................................................................. 29 1.7.1. Communists Became Capitalists...................................................................................29 CHAPTER II:THE DEBATE IN THE WESTERN WORLD ON THE RUSSIAN ECONOMIC TRANSFORMATION 2.1. Contending Reform Ideas on the Russian Economy...................................................37 2.1. l.The Case for Gradual Transition.......................................................................................38 2.1.2. The Case for Shock Therapy............................................................................................39 2.2. Individual Components of Shock Therapy..................................................................42 2.2.1. Price Liberalization............................................................................................................42 2.2.1.1. Recommendations.......................................................................................................... 43 2.2.1.2. The Benefits of Deregulation.........................................................................................43 2.3. Corporatization and Privatization of State Enterprises............................................. 44 2.3.1. Preconditions for Corporatization.....................................................................................46 2.3.2. The methods of Privatization............................................................................................47 2.3.3. The Monopoly Problem...................................................................................................... 2.4. Stabilize Government Spending and Restrict Credit................................................ 49 2.4.1. The problem...................................................................................................................... 49 2.4.2. General Policy Considerations..........................................................................................49 2.4.3. Fiscal Policies...................................................................................................................50 2.4.4. Monetary Policies.............................................................................................................51 2.4.5. Creating a Banking System For a Market Economy.......................................................52 2.5. Opening the Economy Internationally......................................................................... 54 2.5.1. Concrete Steps...................................................................................................................56 2.5.2. Commercial Policy........................................................................................................... .. 2.6. The Role of West.................................................................................................................58 2.7. Moderate the Social Cost of Unemployment................................................................59 2.8. How Russia Came to Adopt Shock Therapy...............................................................59 CHAPTER III: THE IMPLEMENTATION OF SHOCK THERAPY 3.1. Price Liberalization..........................................................................................................